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Singapore headline, core inflation fall in October after two months of marginal rises

SINGAPORE'S headline and core inflation both took a deflationary turn in October to -0.2 per cent, after two months of marginal increases, according to Department of Statistics figures on Monday.

Economists had expected both headline and core inflation to be neutral at 0 per cent.

Core inflation, which excludes the costs of private road transport and accommodation, declined in October from September's -0.1 per cent, with steeper falls in the costs of services (-0.5 per cent) and retail and other goods (-1.6 per cent). Food inflation was also lower than in September, at 1.7 per cent.

But as the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) noted in a joint statement, the steeper fall in services costs “was largely driven by the sharper declines in holiday expenses and airfares in October as compared to September”.

These were not actual prices – which have not been available since April due to international travel restrictions – but imputed ones, estimated using the overall change in headline inflation.

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Having edged up to 0 per cent in September, headline inflation fell on the back of lower core inflation, as well as a steeper decline in private transport costs (-1.3 per cent) and a smaller rise in accommodation costs (0.3 per cent).

Of core inflation components, the only categories to see positive year-on-year inflation in October were food, communication (0.8 per cent), and household durables and services (0.7 per cent).

Seeing the greatest falls were clothing and footwear (-4.3 per cent), recreation and culture (-2 per cent), and healthcare (-1.7 per cent).

MAS and MTI maintained their forecasts for both core and headline inflation to come in at between -0.5 per cent and 0 per cent in 2020, as well as their 2021 forecasts for core inflation to average 0 per cent to 1 per cent, and headline inflation to be between -0.5 per cent and 0.5 per cent.

Their outlook remained unchanged from the previous month's release. External inflation is expected to stay low amid weak demand in key commodity markets and the persistence of negative output gaps in major trading partners. Domestic cost pressures are expected to stay subdued, with labour market slack keeping wages down.

Economists continue to expect MAS to leave foreign exchange policy settings unchanged at the next monetary policy review in April.

“The downturn remains largely domestic in nature, supporting the view that fiscal policy should continue to be the more effective response, and there are signs of a gradual recovery,” said Barclays economist Brian Tan.

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